Regional Comparison Of House Price Rationality By Differential Price-to-rent Ratio Model

Anxiety exists about the crashing of the real estate bubble, while investment impulsion also exists for the steadily rising house price in such an unstoppable house price rising trend defined by the government. The rationality of house price, whether the house price can be explained by the fundamentals, is always an key issue for the market. This article concentrates on the relationship between house prices and rents, gathering data from soufun website to form cross section data about house prices and rents within the urban area of Chongqing and Chengdu. Focusing on the regional comparison problem of house price rationality, this article developed the concept of differential price-to-rent ratio and value beyond rents on the base of differential price-to-rent model which derives from the house price-to-rent ratio concept, DCF model, kinetic model for land price and growth pole theory. Then differential price-to-rent model is applied on the cross-section, using regional house price and rent data of subdistricts in the urban area of Chongqing and Chengdu, and the rationality of house price in subdistrict can be judged by the deviation extent from the regression curve. Macroeconomic expectation, which can be compared to the research of other economists’ research or the prospection formed by the government to determine the rationality of housing price, implied by the housing market also can be deduced from the parameter value acquired from the econometric analysis. According to such train of thoughts, the rationality of house price in Chongqing and Chengdu is analyzed comparatively, which shows that the implied macroeconomic expectation is inclined to pessimistic and the desire for the house holding property is too intense. The resultant of such contradiction gives a modest balanced housing price. So the government should stabilize macroeconomic expectation of the market and lower the subordinate social value of housing property by unhooking the relationship between house, census account and social welfare.